Deep Dive: Paper Checks: The Bane Of Student Disbursements?

U.S. college students must stay on top of numerous bills — including healthcare, housing, textbooks and tuition — so they can fully focus on their educational goals. Many depend on scholarships, loans or grants to pay these bills, and late disbursements of such payments can add frustration to students’ already stressful lives.

Myriad universities still use paper checks to send tuition or housing payments, despite the well-documented inefficiencies. Most students are from generations that are unlikely to use checks to manage their finances as well, and many pay their tuition or other academic expenses through ACH or debit cards — but only after they receive paper check disbursements from their colleges. Just 5 percent of millennial students paid their tuition with checks.

This confusing process — checks paid out via universities, deposited into students’ accounts, then finally transferred back to the schools through ACH or debit cards — has profound consequences for students. Check delays could prevent them from paying for housing, food or academic supplies, putting them behind academically and financially.

Universities may not be able to upgrade their disbursements processes to incorporate students’ preferred speed and flexibility, though. State and federal regulatory concerns keep outdated tools in circulation, and implementing new digital methods can be costly for smaller institutions stretched thin maintaining the rest of their campuses’ student services. Solving student disbursement frustrations is much more complex than it appears, but colleges must keep up with the changing payment atmosphere as other transactions go digital.

The check problem

Fifty-four percent of college students take on some debt to fund their educations, which on average cost $26,290 per year in 2019 for out-of-state institutions. Students are dealing with financial stresses before they even walk onto campus, and check-based fund disbursements can exacerbate these problems.

Academic institutions have similar disbursement processes, though they vary slightly when certifying loans or setting disbursement frequencies. Colleges complete loan certification — verifying that the funds are both necessary and heading to the right recipients — before disbursements are sent directly to these institutions. Refunds or money for housing and other expenses are then sent out via checks.

This is the last step in a process filled with stumbling blocks, but universities cannot entirely get rid of checks due to federal regulations meant to keep certain options available for students who do not have bank accounts or have other financial constraints preventing them from accepting digital payments. This does not necessarily explain why colleges still use checks for most disbursements, however.

Checks are an easy and familiar way to send out funds after combing through long, paperwork-based processes littered with tiny details — all of which need to be verified before money can be sent to recipients. The technology has been part of the disbursement process for decades, though its costs and inefficiencies have increased with time.

Checks’ cons have outweighed their pros for years, and today’s students are much less likely to put up with their frustrations. Universities will need to find ways to move forward to appease tech-savvy students and their budgetary constraints. They can ensure students have access to faster and more convenient digital options in addition to checks, for example, cutting down on processing costs and payment delays. Mobile tools are also emerging as potential ways to bring disbursements directly to students who are more attached to their smartphones than checkbooks.

Mobile disbursements as check alternatives 

Younger consumers are more mobile-focused than previous generations, with many already banking and shopping via smart devices. Disbursing college funds to students’ phones would prevent them from having to repeatedly check postal mailboxes and wait for funds to clear in their bank accounts. It also grants assurance to lenders that want to ensure funds are spent correctly — something much more difficult to prove with checks.

Such disbursements are slowly filtering into schools, but early results are positive. Nearly 90 percent of students from the University of Arkansas and the University of Texas have elected to receive mobile disbursements since the offering became available in late 2018, for example. The popularity is unsurprising, given younger consumers’ mobile habits. What is surprising is that mobile and digital methods, like prepaid or digitally linked debit cards, remain experimental. Thirty-six American universities decided to support mobile payments through respective partnerships with one payment provider in 2018, but other academic institutions have yet to follow.

Checks will likely remain part of student disbursements for a while — at least until schools are able to make upgrades that would ease their cost and time burdens. Universities are already working with third-party providers on payment methods to replace checks, but these solutions may never fully oust legacy methods unless legal restrictions evolve. Academic institutions, students and regulators will need to work together to relieve the strain that paper checks cause.